DCIT, Ludhiana V. M/s R.P. Foundary Pvt. Ltd., Mandi Gobindgarh

ITA 979/CHANDI/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9043 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 17-10-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 08-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVI SARANGA L
• Assessee Lawyers: SSH SUDHIR SEHGAL
• Keywords: Unexplained investment; Search and seizure
• Section: 132; 143(3); 153A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE JUSTICE (RETD.) DEV DARSHAN SUD, PRESIDENT & SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA NO.979/CHD/2013 ASSESSMENT YEAR: 2010-11 THE DCIT, VS. M/S R.P. FOUNDARY PVT. LTD., CENTRAL CIRCLE-III, MANDI GOBINDGARH LUDHIANA PAN NO. AACCR8095F & C.O. NO. 32/CHD/2013 (IN ITA NO. 979/CHD/2013) ASSESSMENT YEAR 2010-11 M/S R.P. FOUNDARY PVT. LTD., VS. THE DCIT, CENTRA L CIRCLE-III, MANDI GOBINDGARH ` LUDHIANA LUDHIANA PAN NO. AACCR8095F (APPELLANT) (RESPONDENT) APPELLANT BY : SH. RAVI SARANGAL, CIT DR RESPONDENT BY : S/SH. SUDHIR SEHGAL & ASHOK GOYAL DATE OF HEARING : 17.10.2016 DATE OF PRONOUNCEMENT : 21.10.2016 ORDER PER J. SUDHAKAR REDDY, AM THE APPEAL OF THE REVENUE AND CROSS OBJECTION OF TH E ASSESSEE ARE DIRECTED AGAINST THE ORDER OF CIT(A)-I, LUDHIANA DA TED 29.7.2013. 2. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE IS A PRIVATE LIMITED COMPANY AND IS ENGAGED IN THE BUSINESS OF MANUFACTU RING AND TRADING OF INGOT MOULDS. A SEARCH AND SEIZURE OPERATION WAS C ONDUCTED ON THE ASSESSEE. 2 IN RESPONSE TO THE NOTICE U/S 153A OF THE INCOME-T AX ACT, 1961 (THE ACT) ISSUED TO THE COMPANY, CONSEQUENT TO SEARCH U/S 132 OF THE ACT, THE ASSESSEE FILED A RETURN OF INCOME DECLARING INCOME OF RS. 59 ,55,040/- ON 28.03.2011. THE ASSESSING OFFICER PASSED ON ORDER U/S 153A R.W. S. 143(3) ON 25.03.2013. DETERMINING THE TOTAL INCOME AT RS. 1,35,89,228/-. DURING THE COURSE OF SEARCH, THE ASSESSEE COMPANY MADE A SURRENDER OF RS . 50 LAKHS ON ACCOUNT OF GROSS PROFIT ON UNACCOUNTED SALES AND INVESTMENT TH EREIN. THE UNACCOUNTED SALES WAS QUANTIFIED BY THE ASSESSING OFFICER AS RS . 7.65 CRORES. THE ASSESSING OFFICER MADE FURTHER ADDITION OF RS. 75,5 9,782/- ON ACCOUNT OF PROFIT CLAIMED, AS WELL AS PEAK INVESTMENT. AGGRIE VED, THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE FIRST APPELLATE AUTHORIT Y GRANTED PART RELIEF. FURTHER AGGRIEVED, THE ASSESSEE HAS COME BEFORE US ON THE FOLLOWING GROUNDS:- (I) THAT LD. CIT(A) ERRED BOTH IN LAW AND ON FACTS IN D ELETING THE ADDITION OF RS.69,24,127/-OUT OF TOTAL ADDITION OF RS. 75,54,782/- MADE ON ACCOUNT OF UNACCOUNTED SALES WH ICH INCLUDED INVESTMENT IN PURCHASES AND PROFITS EARNED ON THE SALES. (II) THAT LD. CIT(A) ERRED BOTH IN LAW AND ON FACTS IN G IVING THE FINDING THAT THE FUNDS ON ACCOUNT OF SHORTAGE OF ST OCK FOUND DURING SEARCH ON 30.06.2010 WERE AVAILABLE WITH THE ASSESSEE ON 25.01.2010 IGNORING THE FACT THAT SUCH FUNDS RELATED TO THE NEXT FINANCIAL YEAR. (III) THAT LD. CIT(A) ERRED BOTH IN LAW AND ON FACTS IN I GNORING THE PEAK SALES THEORY AND APPLYING THE PEAK PURCHAS E THEORY WHICH IS ALSO NOT CORRECT BECAUSE NO PEAK PURCHASES WERE TAKEN BY THE LD. CIT(A) BUT ONLY BIGGEST PURCHASE TRANSACTION WAS TAKEN. (IV) THAT LD. CIT(A) ERRED BOTH IN LAW AND ON FACTS IN G IVING THE FINDING THAT THE ASSESSEE HAD DISCLOSED RS.20,00,00 0/- DURING SEARCH WHEREAS NO AMOUNT WAS DISCLOSED DURIN G SEARCH. IT WAS ONLY DISCLOSED IN THE RETURN OF INCO ME. 3 (V) THAT THE APPELLANT CRAVES LEAVE TO ADD OR A MEND GROUND(S) OF APPEAL ON OR BEFORE THE APPEAL IS HEARD AND DIS POSED OFF. (VI) IT IS PRAYED THAT THE ORDER OF THE COMMISSIO NER OF INCOME TAX (APPEALS) BE SET ASIDE AND THAT OF THE ASSESSI NG OFFICER BE RESTORED 3. WE HAVE HEARD THE RIVAL CONTENTIONS. ON A CAREFU L CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT T HE FIRST APPELLATE AUTHORITY AT PARA 6 OF HIS ORDER HAS HELD AS UNDER:- 6. I HAVE CONSIDERED THE FACTS OF THE CASE, THE B ASIS OF ADDITION MADE BY THE AO, THE ARGUMENTS OF THE AR ON THE ISSUE DURING ASSESSMENT AS WELL AS APPELLATE PROCEE DINGS. IT IS SEEN THAT THE ASSESSING OFFICER HAS TAKEN THE PEAK OF SALES AMOUNT AS UNACCOUNTED INVESTMENT WHICH IS INCORRECT METHOD OF WORKING OUT OF PEAK INVESTMENT AS WELL AS PROFIT . FIRST OF ALL, THE TOTAL AMOUNT OF PROFIT COULD BE EASILY WOR KED OUT ON THE BASIS OF GROSS PROFIT SHOWN BY THE ASSESSEE AS PER THE BOOKS OF ACCOUNTS AND APPLYING THE SAME RATE TO THE TOTAL AMOUNT OF SALES GIVES A GROSS PROFIT OF RS. 29,46,9 18/-. THE NEXT QUESTION IS HOW MUCH INVESTMENT IS REQUIRED TO MAKE A TURNOVER OF RS. 7.65 CRORE. FOR THIS PURPOSE, THE CORRECT APPROACH WOULD BE TO LOOK AT THE PURCHASES SIDE AN D SEE THE PEAK INVESTMENT IN PURCHASES WHICH IS FOUND AT AN A MOUNT OF RS. 52,58,680/- ON 25.01.2010. THIS INCLUDES THE IN VESTMENT INTO UNACCOUNTED PURCHASES TILL 25.01.2010 AS WELL AS THE GROSS PROFIT EARNED BY THE ASSESSEE ON THE UNACCOUN TED SALES TILL SUCH DATE. IT IS RELEVANT FACT HERE THAT DURIN G THE COURSE OF SEARCH OPERATION NEGATIVE STOCK AMOUNTING TO RS. 26 ,28,025/- HAD BEEN BROUGHT ON RECORD WHICH MEANT THAT THE ASS ESSEE ON THE GIVEN DATE OF SEARCH HAD SOLD GOODS AMOUNTING T O RS. 26,28,025/- BUT HAD NOT RECORDED THE SAME IN THE BO OKS OF ACCOUNTS. THEREFORE, INVESTMENT REQUIRED FOR MAKIN G THE UNACCOUNTED TURNOVER TO THE EXTENT OF RS.26,28,025/ - CAN BE CLEARLY SAID TO BE AVAILABLE ON THIS ACCOUNT. THER EFORE, OUT OF 4 TOTAL PEAK INVESTMENT OF RS. 52,58,680/-, RS.26,28, 025/- GETS ACCOUNTED FOR ON THIS GROUND AND FURTHER ASSESSEE H AD DISCLOSED AN AMOUNT OF RS.20 LACS DURING THE COURSE OF SEARCH OPERATION ON ACCOUNT OF INVESTMENT INTO UNACCOUNTED TURNOVER LEADING TO A DIFFERENCE OF RS.6,30,655/- (52,58,680 - 46,28,025). THEREFORE, THIS AMOUNT REPRESENTS THE UNACCOUNTED INVESTMENT INTO THE BUSINESS OF TRADING DONE BY THE ASSESSEE OUTSIDE THE BOOKS OF ACCOUNTS WHICH DO ES NOT GET COVERED BY THE DISCLOSURE MADE U/S 132(4) AS WELL AS THE NEGATIVE STOCK. THE GROSS PROFIT ON THE ENTIRE UNAC COUNTED TURNOVER OF 7.65 CRORES AT RS.29,45,250/- ALREADY S TANDS COVERED BY THE DISCLOSURE OF THE APPELLANT TO THE TUNE OF R S.30,00,000/-. THEREFORE, THE NET ADDITION WORKS OUT TO RS. 6,30,6 55/- WHICH IS CONFIRMED. THE REST OF THE ADDITION IS DIRECTED TO BE DELETED. 4. THE LD. DR COULD NOT CONTROVERT THE FACTUAL FIND ING OF THE LD. FIRST APPELLATE AUTHORITY. THE LD. CIT(A) HAS RECORDED T HAT THE COMPANY HAS MADE RS. 7.65 CRORES OF UNACCOUNTED SALES AND WHEN THE GP RATE OF 3.85% AS DECLARED IN THE BOOKS OF ACCOUNT IS APPLIED, THE UN ACCOUNTED PROFIT ON THOSE SALES WORKED OUT TO RS. 29,46,918/- AGAINST WHICH T HE ASSESSEE HAD MADE A DISCLOSURE OF RS. 30,00,000/-. SO, NO FURTHER ADDIT ION IS WARRANTED ON THIS COUNT. AS REGARDS UNACCOUNTED INVESTMENT, HE FOUND THAT THE PEAK PURCHASES WERE RS. 52,58,680/- ON 25.01.2010 AND AFTER FACTOR ING NEGATIVE STOCK OF RS. 26,28,025/-, HE HAD ARRIVED AT A UNACCOUNTED IN VESTMENT OF RS. 26,30,655/-. AS THE ASSESSEE HAD SURRENDERED RS. 20 LAKHS ON ACCOUNT OF INVESTMENT, HE RESTRICTED THE ADDITION TO RS. 6,30, 655/-. WE FIND NO INFIRMITY IN THIS ORDER OF LD. CIT(A). 5. IN THE RESULT, WE UPHOLD HIS ORDER AND DISMISS T HIS APPEAL OF THE REVENUE. C.O. NO. 32/CHD/2013 - 6. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT HE IS NOT PRESSING THE CROSS OBJECTION FILED. THUS THE CROSS OBJECTION NO . 32/CHD/2013 IS DISMISSED AS NOT PRESSED. 5 7. IN THE RESULT, THE APPEAL PREFERRED BY THE REVEN UE AND THE CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST OCTOBER, 2016. SD/- SD/- [J.SUDHAKAR REDDY] [JUSTICE (RETD.)DEV DARSHAN SUD] ACCOUNTANT MEMBER PRESIDENT DATED : 21 ST OCTOBER, 2016 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR